Freeport points to progress in Indonesia permit talks

TORONTO (Reuters) - Freeport-McMoRan Inc (FCX.N) said it was edging closer to a permit deal with Indonesia for its massive Grasberg mine, but the world’s second-biggest copper producer cautioned that it has not yet struck any formal agreements.

There has been little sign of progress since last August, when Freeport promised to divest a 51-percent stake in Grasberg, the world’s second-biggest copper mine, to the Indonesian government, in exchange for long-term operating rights.

But negotiations have produced positive results, insisted Chief Executive Richard Adkerson on a conference call with analysts, adding that all parties aim to complete talks in the first half of 2018.

Both sides had agreed on standards to set a fair market value for Freeport’s divestment - a key sticking point to date - and the government had accepted Freeport’s demand for long-term financial and legal certainty, he said.

“We’re focused on getting this Indonesian thing resolved and recognize that until we do, that’s going to be a factor for credit ratings, stock valuation,” Adkerson said.

Grasberg produced 1 billion pounds of copper in 2017, making it key both to Freeport’s operations and global copper supply.

The company repeated a warning that it could scrap multi-billion-dollar development plans in Indonesia or pursue arbitration if negotiations fail.

Indonesia introduced new rules to gain greater control over mineral resources in 2017, requiring miners to divest a majority stake in their operations, relinquish arbitration rights and pay new taxes and royalties.

Freeport has also agreed to build a new smelter and said it was considering partnership with Indonesian miner PT Amman for the development.

With its announcement of market-beating quarterly profits lifted by stronger prices, Freeport said a temporary Grasberg permit was extended to June 30 and it was seeking extension for its export license beyond Feb. 16.

Freeport said it was also helping Indonesia evaluate the 40-percent interest in Grasberg held by joint venture partner Rio Tinto (RIO.L) (RIO.AX), which is discussing a deal with the government.

Rio’s holding could be converted into shares of Freeport’s Indonesian unit, Indonesia’s mining minister has said, making up the bulk of the government purchase.